Tellabs Reduces Terms for Proposed Acquisition of Ciena

Tellabs Inc. on Friday reduced the terms of its proposed acquisition of rival telecommunications equipment maker Ciena Corp., cutting the deal’s value by more than one-third to about $4.7 billion.

The companies originally agreed to a stock swap worth about $7.1 billion. But a revision had been widely expected after Ciena recently warned its third-quarter results would fall short of Wall Street forecasts and said its hopes for a huge contract from AT&T; Corp. were dashed.

Ciena stock jumped on Nasdaq, gaining $4.50 to close at $35.31 as investors cheered that the deal would proceed.

Shares of Tellabs, among the most active Nasdaq issues, dropped $8.94 to close at $49 amid concerns the revised deal would dampen earnings more than originally expected and criticism that it had not negotiated an even cheaper price.

Under the new terms, 0.8 share of Tellabs will be exchanged for each Ciena share. That ratio values each Ciena share at $46.25, based on Tellabs’ closing stock price Thursday of $57.81. The drop in Tellabs’ stock price Friday reduces the value for Ciena to about $39.80 a share. The original deal, announced June 3, called for a 1-for-1 share swap.

One arbitrageur, who declined to be named, said some investors still had fears that Lisle, Ill.-based Tellabs may be vulnerable to Ciena’s high-risk business.

Ciena, based in Linthicum, Md., has only a handful of customers, with long-distance carriers WorldCom Inc. and Sprint Corp. accounting for about 95% of its revenue last year.

The market for Ciena’s product, which increases the capacity of fiber-optic networks, also is becoming increasingly competitive.

The boards of Tellabs and Ciena have approved the new terms. The shareholder vote set for Sept. 9 will be postponed to a yet-to-be-determined date to allow shareholders more time to review the new terms.